AI demand in Asia is strong, says Wedbush's Dan Ives on his AI bull case

Key Concepts

• AI Trade: The investment sector focused on companies involved in artificial intelligence development and deployment.
• Nvidia Chips: High-performance graphics processing units (GPUs) crucial for AI training and inference.
• Demand to Supply Ratio: A metric indicating the imbalance between customer orders and available product, here highlighting extreme demand for Nvidia chips.
• Hyperscalers: Large cloud computing providers like Microsoft, Google, and Amazon.
• Channel Checks: On-the-ground investigations and discussions with industry participants to gauge market conditions and demand.
• Export Controls: Government regulations restricting the sale of certain technologies to specific countries, impacting China's access to advanced chips.
• CapEx (Capital Expenditure): Spending by companies on acquiring or upgrading physical assets, such as data centers and computing infrastructure.
• AI Arms Race: The competitive development and deployment of AI technologies by nations and companies.

AI Trade Bullishness Driven by Asian Channel Checks

Dan Ives, Global Head of Technology Research, presents a bullish outlook on the AI trade, supported by recent channel checks conducted in Asia. His findings indicate a significant imbalance in the demand for Nvidia chips, with demand exceeding supply by a ratio of approximately 10 to 1, and potentially as high as 12 to 1. Ives emphasizes that these checks, conducted three to four times annually, focus on regional demand, production capabilities, and the use cases driving AI adoption, with a particular emphasis on the hardware side, which is highly favorable for Nvidia.

Underestimation of Nvidia's Growth

Ives believes the market is underestimating Nvidia's future performance, projecting that street estimates for the next 12 to 18 months are likely to be off by 20% to 30%. This optimism is rooted in the ongoing build-out by hyperscalers, including Microsoft, Google, Amazon, and Oracle. He characterizes the current stage of AI adoption as being in its "second inning," suggesting substantial room for continued growth.

Details of Channel Checks and Demand Drivers

The channel checks specifically focused on regions like Taiwan, examining the demand-supply dynamics for Nvidia. While acknowledging existing export controls impacting China, Ives's assessment is based on the overall demand within the region. He notes a significant increase in demand compared to three months prior, estimated at around 20%. This surge is attributed to robust spending by big tech companies and is driven by evolving use cases.

Key Argument: Demand is Not Slowing Down

A central argument presented by Ives is that the demand for AI-related hardware and services is not decelerating. He anticipates that capital expenditures (CapEx) in this sector will be significantly underestimated for the upcoming year. This sustained demand is seen as bullish for key players including Nvidia, AMD, TSMC (Taiwan Semiconductor Manufacturing Company), and hyperscalers. Furthermore, companies like Palantir and Snowflake, which represent consumption use case plays, are also highlighted as strong investment opportunities.

Huawei and the AI Arms Race

Regarding Huawei, Ives acknowledges it as a significant opportunity, particularly in light of China's efforts to narrow the global AI gap with major tech companies. While Nvidia remains the preferred chip globally, the situation highlights an ongoing "AI arms race" between the US and China. From an investor perspective, this competition is viewed as bullish for both sides. Ives specifically mentions Alibaba and Baidu as Chinese companies well-positioned to benefit from this acceleration, with Alibaba being particularly favored.

Conclusion and Takeaways

Dan Ives's channel checks in Asia provide strong evidence for a continued bullish trend in the AI trade. The overwhelming demand for Nvidia chips, coupled with significant underestimation of future growth by the market, points to substantial upside potential for key technology companies. The ongoing investment by hyperscalers and the broader adoption of AI use cases suggest that the current growth phase is far from over. The competitive landscape, including China's efforts with companies like Huawei, further fuels this "AI arms race," creating investment opportunities across the board. The key takeaway is that the AI revolution is accelerating, and current market expectations are likely too conservative.